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Carbon price collapses as EU energy committee members oppose back-loading

24 Jan 2013 18:05:12 | edcm

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The carbon price collapsed to a new low on Thursday after several members of the EU's industry research and energy committee (ITRE) came out against the back-loading of EU allowances (EUAs) in phase III of the EU's emissions trading system (ETS).

While the majority of members were in favour, with 42 votes backing the proposed change of the auctioning timetable to back-load the allowances, 18 members voted against the proposal.

The vote signalled the energy committee's opinion on back-loading, but the environment committee leads on the matter and, while it was also discussing the matter on Thursday, it will not cast its own vote until 19 February. An EU source said that even the environment committee vote on the proposal is not crucial or definitive but will rather provide only a provisional decision on the matter.

Meanwhile, however, the EU's inability to back the proposal was starting to undermine confidence in the market on Thursday. Market participants reported that prices fell to less than €3.00/tonne of CO2 equivalent (tCO2e), although they recovered soon after.

Critical comments

In response to the committee vote and the falling price, UK European Parliament member (MEP) Chris Davies, a member of the Alliance of Liberals and Democrats for Europe Party, said via Twitter that confidence in the ETS has "virtually gone" and that consequently the bloc's climate change policy is "at risk of collapse". His view was re-tweeted by Green Party MEP Bas Eickhout.

The tweets followed another Twitter comment, made on Tuesday by EU Climate Commissioner Connie Hedegaard, in which she said those opposed to the back-loading of EUAs are "toying" with the EU's single carbon market.

On Wednesday, German energy giant E.ON's CEO called for the ETS to be replaced by a carbon tax if the EU fails to intervene to prop up carbon emissions prices (see EDCM 23 January 2013).

However, Jos Cozijnsen, a Netherlands-based consulting attorney and carbon-dioxide emissions expert, pointed out on Thursday that the ETS is a compliance market. That means that, even if the carbon price remains low, those participants covered by the ETS will continue to be present in the market.

But Hedegaard once again highlighted the consequences of delaying a decision on the back-loading proposal.

"On a day when the carbon price at some point went below €3[/tCO2e], it must be clear to all that, when the Commission warned that the ETS price could drop dramatically, it was not a false warning but a real possibility," she said in a statement on Thursday. "This is not the time to put the Commission's back-loading proposal on the back burner."

Hedegaard said that Thursday's price crash should serve as a "final wake-up call" to the European parliament and EU member states.

She appealed to the member states to back the proposal and support the ETS, warning that the alternative would be a climate policy "patchwork" throughout the bloc.

Market fundamentals weak

While news of the committee vote dragged prices down, analysts pointed out that the market's fundamentals remain weak.

"Utility hedging remains the only sustained support for EUA prices and, without intervention, the best the market can hope for is that industrials keep their length on their books," Jeffries Bache carbon analyst Matthew Gray said in a briefing note, also published on Thursday.

Asked whether the low carbon price was putting the system at risk of being scrapped, Trevor Sikorski, head of environmental market research at Barclays Capital, said by e-mail on Thursday: "I think the risk is fairly small of it being scrapped. I do not see a majority of member states wanting to take this out. The risk seems more that the ETS becomes somewhat low-key for a while before policy makers decide to give it something to do." MLDB

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